Today's Headlines

Bloomberg:
- Crude oil fell almost $4/bbl. in NY on signs that US fuel consumption is dropping because of a slowing economy and record energy prices. Russia’s oil production may rise to 12 million barrels a day after Prime Minister Putin’s government eases taxes, billionaire Chalva Tchigirinski said. Putin yesterday approved a tax-cut plan to stimulate oil output that may be sent to lawmakers this week. Russian oil production fell to 9.72 million barrels a day in April, the lowest in 18 months. “The news from Russia is significant,” said Tom Bentz, a broker at BNP Paribas in NY. US motorists were forecast to make 1% fewer automobile journeys of at least 50 miles during last weekend’s holiday than a year ago, the AAA said. US fuel consumption averaged 20.3 million barrels a day in the four weeks ended May 16, down 1.3% from a year earlier.
- Rice futures tumbled by their daily limit for the second session as producers eased export bans, alleviating concerns that global supplies will fail to meet demand.
- Nickel extended a decline into its fifth week in London as high oil costs threaten to damp world economic growth, further weakening demand for the metal used to make stainless steel.
- Housing demand in California, where one out of every eight US residents lives, is reviving as bargain hunters buy foreclosed properties, reversing a two-year decline in home sales. Sales in the state increased 2.5% in April, following 30 consecutive declines.
- Wheat prices, at their lowest in almost nine months, may tumble further as farmers start to bring in a forecast record crop, US Wheat Assoc. IP Vincent Peterson said.

Wall Street Journal:
- Investors last year craved international exposure thanks to the double-digit gains of many overseas markets. Now, it looks like the sweet spot may be in the US as domestic stocks, if not the broader economy, show signs of recovery.
- Bush’s Shift in Rhetoric Almost Lost War, Feith Says. On television and radio, in print and on the Internet, day after day they repeated the claim that the undiscovered stockpiles were the sum and substance of why the U.S. went to war against Saddam.
- Agriculture’s Last Frontier. African Farmers, US Companies Try to Create Another Breadbasket With Hybrids.
- Violence in Iraq has decreased to levels see about four years ago. The drop in violence follows recent Iraqi-led military campaigns in Basra in the south, Baghdad’s Sadr City and Mosul in the north. Al-Qaeda in Iraq is in a “confused state” after the attacks in Mosul, said Iraqi Defense Ministry spokesman Major General Mohammed al-Askari.

NY Times:
- US Truckers Sell Vehicles as Fuel Prices Rise.

Women’s Wear Daily:
- Sears Holdings Corp.(SHLD) signed rap singer LL Cool J to start an apparel brand for the retailer.

Tex Report:
- Baosteel Group and Taiyuan Iron & Steel Group will cut stainless steel output 30% each next month because of a decline in prices. Four stainless steel producers in China lowered production by 50% so far this month. Prices in the Wuxi market have declined $290 a ton for cold-rolled stainless steel sheets this month because of a fall in nickel prices.

FinancialWeek:
- Panic of ’07 stirs up mix at top money managers. Last year’s schizoid second half sent trillions of institutional dollars into alternative assets, international equities. Big winners: TIPS, hedge funds and private equity.

Financial Times:
- Oil has reached a turning point by Dan Yergin of Cambridge Energy Research. Oil prices at this level take us into a new world – “Break Point” – where the question is not only “how high can the price go?”, but also “what will be the response?” Is this the point at which oil begins to lose its almost total domination in transport?

Europa:
- The European Commission has launched a number of actions today to promote energy efficient driving habits among European car users.

Frankfurter Allgemeine Zeitung:
- Google Inc.(GOOG) said within a few years mobile advertising will generate more sales than ads addressing personal-computer users via the Internet, citing CEO Eric Schmidt. There are no limits for search engine marketing and the mobile Internet is “the next big wave,” he said.

DigiTimes:
- The global market for large-sized LCD panels appears to be shrugging off economic concerns this year, with rising demand for monitor, notebook-PC and television panels expected to generate a 17.7% increase in unit shipments in 2008, according to market research firm iSuppli.

Xinhua:
- China aftershocks may continue for months.

O Globo:
- Petrobras(PBR), Brazil’s state-controlled oil company, has more natural gas than industry and power producers are demanding, citing the director of gas and energy. At present, 58 million cubic meters a day of natural gas supply is available, which current demand is 56 million cubic meters a day.

Bear Radar

Style Underperformer:

Large-cap Value -.31%

Sector Underperformers:

Goldirlind (-2.95%), Coal (-1.73%) and Steel (-1.42%)

Stocks Falling on Unusual Volume:

WBD, ADM, UBS, CHL, RIO, STO, CGV, SU, SFSF, DRYS, ESLR, TBSI, CSUN, FEED and PDX

Stocks With Unusual Put Option Activity:

1) LRCX 2) PXP 3) RHT 4) JCG 5) UPS

Consumer Confidence Depressed, New Home Sales Rise

- Consumer Confidence for May fell to 57.2 versus estimates of 60.0 and a reading of 62.8 in April.

- New Home Sales for April rose to 526K versus estimates of 520K and 509K in March.

BOTTOM LINE: Confidence among US consumers fell to the lowest level in more than 15 years, Bloomberg reported. The Present Conditions component fell to 74.4 from 81.9 in April. The Expectations component fell to 45.7 from 50.0 the prior month. The average price of regular unleaded gasoline rose to a record $3.94 a gallon yesterday, according to data from AAA. Those planning to purchase a large appliance remained at 32.10, the same as April. Confidence in the northern part of the country continues to skew the overall gauge. Confidence in the Northeast Central region, where most media outlets and hedge funds are headquartered, fell another 16% to an extraordinarily depressed 34.80. I still think the current “US negativity bubble” will lose some air over the coming months as energy prices fall, credit turmoil ends, housing fears subside, the job market improves, stocks rise, election uncertainty ends, fiscal/monetary stimuli take hold, the US dollar rises, inflation decelerates and interest rates remain low.

New Home Sales in the US unexpectedly rose in April, Bloomberg reported. Sales rose 3.3% to an annual pace of 526,000 from a 509,000 rate the prior month. The median sales price last month rose 1.5% from April 2007 to $246,100. The supply of homes at the current sales pace fell to 10.6 months’ worth from 11.1 months in March. The number of houses completed and waiting to be sold fell to 181,000, the fewest since July of last year. Purchases soared 42% in the Northeast, rose 8.3% in the West and gained 5.8% in the Midwest. They fell 2.4% in the South. According to BankRate.com, the average 30-year fixed mortgage rate is currently 5.81%, down from 6.12% in March and down from 6.43% in June of last year. The Homebuyer Affordability Index is currently 130.20, which is up from a low of 99.6 in July 2006 and at the best level since April 2004. I think it is very likely home sales have now seen their lows and will trend modestly higher through year-end.

Bull Radar

Style Outperformer:

Small-cap Growth (-.89%)

Sector Outperformers:

Semis (+2.67%), Airlines (+2.16%) and Networking (+1.52%)

Stocks Rising on Unusual Volume:

TZOO, CNSL, KTC, WNR, IXYS, VLCCF, CEDC, ASIA, HIBB, NDSN, LRCX, SNHY, KELYA, EXBD, DDUP, CAKE, CBRL, AMSC, UTHR, ALGT, LQDT, PWRD, PENN, SR, SXI, TGI, BCE and FLO

Stocks With Unusual Call Option Activity:

1) BIIB 2) SFD 3) NSM 4) SPF 5) IMCL

Links of Interest

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Tuesday Watch

Weekend Headlines
Bloomberg:
- US Federal Reserve and government steps taken to calm financial markets and ease the housing crisis are working, according to a Treasury Dept. official.
- China Mobile Ltd., the world’s largest phone company by users, lost more than $25 billion in market value in Hong Kong trading after the government unveiled an industry reorganization plan to help smaller operators. The shares fell 7.8%, the biggest drop in more than six years.
- G-8 Pledge to Halve Global Carbon Emissions by 2050.
- The US average price of regular unleaded gasoline rose 2 cents overnight as almost a fourth of Americans shortened or abandoned plans for the Memorial Day weekend, traditionally the beginning of summer travel.
- Hillary Clinton’s campaign chairman said a fight over delegates might continue until the Democratic Party’s nominating convention in August.
- Democratic presidential candidate Barack Obama said his rival Hillary Clinton is trying to incite anger in Florida because it’s her last hope to justify claims that she can still win her party’s nomination.
- Republican John McCain’s Doctors Say Candidate Fit for Duty, No Sign of Cancer.
- Victor Lespinasse, a market analyst for GrainAnalyst.Com, would short corn, soybeans and wheat at current levels. (video)
- Emerging market stocks fell for a fifth day, the longest stretch of declines since February, as China Mobile Ltd. tumbled and near-record oil prices pushed transportation shares lower.
- UBS(UBS) Falls After Saying More Mortgage Losses Possible.
- The yuan climbed to the highest since a dollar link was abolished in 2005 on speculation that China will quicken gains to damp inflation.
- Federal Reserve Bank of New York President Timothy Geithner said the world economy is coping with the US slowdown.

Wall Street Journal:
- Trichet Says Shocks Aren’t Over for Europe’s Economy.
- Home sales are rising in some US metropolitan areas where lenders have slashed prices on foreclosed properties. Sales are up sharply in Las Vegas, Sacramento, Fort Myers and inner-city Detroit.
- Chinese Officials Seek To Quell Rising Anger; Flood Concerns Grow.
- Jeffrey Frankel, of Harvard University, notes that perhaps oil producers are intentionally leaving oil inventories in the ground. That would be a reckless game to play, because it could lead to the types of shifts that caused energy prices to drop precipitously in the 1980s, inflicting heavy damage on the Saudi and other OPEC economies. The combination of a change in consumer behavior and an economic slowdown that is showing signs of spreading beyond the US may already augur just the kind of sharp drop in oil prices that occurred back then.

MarketWatch.com:
- In ‘4-G’ wireless race, first to market may not win. AT&T(T), Verizon(VZ) betting they can catch up with Sprint’s(S) WiMax gambit.

NY Times:
- The Betfair Web site, which enables bettors in 80 countries to match odds with each other on many sports, also has brought scrutiny to suspicious betting activity. The Web site has alerted dozens of sports organizations to suspicious activity, prompting investigations in horse racing, soccer and tennis.
- Mexico’s Fight Versus Drugs Brings on Brazen Attacks.
- Internet Browsers Are a Battleground Once Again. Next month, after three years of development and six months of public testing, Mozilla, the insurgent internet browser developer that rose from the ashes of Netscape, will release Firefox 3.0. It will feature a few tricks that could change the way people organize and find the sites they visit most frequently. Firefox now has 170 million users around the world and an 18% share of the browser market. In 2004, Google(GOOG) struck a deal with Mozilla to include a Google search box tucked into a corner of the Firefox browser.

TheStreet.com:
- Want to Bet on Wind Energy? Here’s How.
- Technical Outlook: Don’t Slip on Oil.

Macworld:
- Future Apple(AAPL) devices may be solar powered.

NorthJersey.com:
- BMW plans to bring a fleet of hydrogen-powered cars – complete with a fueling station – to its headquarters in Woodcliff Lake. The company will lend the cars to celebrities and politicians to test how they fare in the region and to promote these alternative fuel vehicles.

LA Times:
- Compensation for CEOs fell in 2007, after years of steady increases. California’s top 100 biggest companies paid 10% less, on average, to their top executives in 2007 than they did the year before. Nationwide, the pattern was similar, with pay falling 5.5%.

Seeking Alpha:
- Why Mark to Market Accounting Sucks.
- Credit Crisis Indicators Graphs.

Sun-Sentinel:
- South Florida’s housing picture wasn’t as dreary last month as the lingering sales decline eased in response to another round of price cuts. “People are saying, “I know the market stinks and it might get worse, but if I can buy a home for the same price I would have paid a few years ago, it’s worth it,” said Mike Larson, a housing analyst with Weiss Research in Jupiter. Sales of existing homes in Palm Beach County dropped slightly in April, to 662 from 665 a year ago. That’s an improvement from the steep year-over-year decreases in January, February and March, and the steady monthly declines since 2005. Moreover, existing condo sales in Palm Beach County increased 3% in April, to 664 from 6464 a year ago.

Business Week:
- Are Pension Funds Fueling High Oil? If you’re wondering why driving to work has gotten so expensive, you might want to peruse your pension fund’s investments. “Commodities are experiencing demand shock from a new category of speculators: institutional investors like corporate and government pension funds, university endowments and sovereign wealth funds,” said Michael Masters, managing member of Masters Capital Management, a Virgin Islands-based hedge fund. “Index speculators are the primary cause of the recent price spike in commodities,” he said. But in the hearing, Masters distinguished between traditional speculators and what he calls index speculators, or passive investors who enter the commodities markets as a long-term hedge against inflation. Commodities exchanges limit the number of positions an investor can take in the market, but Masters says the Commodity Futures Trading Commission has allowed unlimited speculation in these markets through a loophole. This so-called swaps loophole exempts investment banks like Goldman Sachs (GS) and Merrill Lynch (MER) from reporting requirements and limits on trading positions that are required of other investors. The loophole allows pension funds to enter into a swap agreement with an investment bank, which can then trade unlimited numbers of the contracts in futures markets. Speculative activity in commodity markets has grown dramatically over the last several years. In the past decade, the share of long interests—positions that benefit when prices rise—held by financial speculators has grown from one-quarter to two-thirds of the commodity market. In only five years, from 2003 to 2008, investment in index funds tied to commodities has grown twenty-fold, from $13 billion to $260 billion. Additionally, hedge fund director Masters points to data showing that over a five-year period, China's demand for oil has increased by 920 million barrels, while over the same period, index speculators' demand has increased by 848 million barrels. The California Public Employees Retirement System (CalPERS), the largest U.S. pension fund, has invested about $1.1 billion in commodities swaps contracts through investment banks like Goldman Sachs. Senator Joe Lieberman (I-Conn.), the committee chairman, concluded the hearing by agreeing that institutional investors are having a disproportionate impact on commodity prices. He says he will convene another panel of witnesses to examine how to close the "swaps loophole," among other ideas for reform. (very good article)
- Beyond Blogs. Three years ago our cover story showcased the phenomenon. A lot has changed since then.

Automotive News:
- Kia Motors Corp., South Korea’s second-largest automaker, will produce small cars at its plant in Georgia, citing Kim Dong Jin, vice chairman at Hyundai Motor. Kia’s US plant may also make cars for Hyundai Motor.

Washington Post:
- As Global Wealth Spreads, the IMF Recedes.
- US officials established reconstruction teams at two sites in the southern Iraqi provinces of Karbala and Najaf as security gains permit repairs on infrastructure to boost economic development.

CNNMoney.com:
- Did China just open the door for Apple’s(AAPL) iPhone?

Reuters:
- Nigerian Petroleum Minister of State H. Odein Ajumogobia said 175,000 barrels a day of production halted by militant attacks may be restored within the next week or so, citing Nigerian television.
- The SEC is looking into the workings of the three main credit rating agencies, prompted by their handling of the subprime crisis and a report of computer errors at Moody’s.

BBC:
- Former US President Jimmy Carter said Israel holds 150 nuclear weapons in an arsenal that the Jewish state has never confirmed exists. Carter gave the figure at a news conference at the annual Hay literary festival in Wales, in response to a question about how a future US president should deal with the Iranian nuclear threat.

Financial Times:
- The upheaval in global capital markets is creating abundant new investment targets for hedge fund incubators. London’s FRM, ADI Gestion of Paris and SkyBridge Capital in New York are among seeders that are seeking fresh capital to back start-up hedge fund managers around the globe.
- An industry charged up: electric vehicles are poised to go mainstream. The vanguard of a green automotive revolution will roll out next spring on an unlikely set of wheels: a Mercedes luxury sedan. The marque’s S400 BlueHybrid will be the first mass-produced vehicle equipped with a lithium-ion battery, like the ones in laptops or mobile phones – but powerful enough to help propel a large luxury car.
- Sharp rise in overdue mortgage payments in the UK.

TimesOnline:
- LTCM’s John Meriwether in trouble again. The former Long Term Capital Management chief is having to reassure investors in his latest hedge fund venture.
- Anthony Bolton, one of London’s leading fund managers, called the top of the commodities market yesterday by arguing that he would switch out of metals and oil and move his funds into financial stocks.

Daily Telegraph:
- Speculators are largely responsible for diving crude oil prices to their peaks in recent weeks and the record oil price now looks like a bubble, hedge fund manager George Soros has warned. “The price has this parabolic shape which is characteristic of bubbles,” he said. Many experts have claimed speculation is only a minor factor affecting crude prices.

Globe and Mail:
- Canada’s financial intelligence agency said criminals may be using Internet-based companies that sell electronic gold to launder money or finance terrorists.

El Mundo:
- Spain’s Savings Bank Foundation cut its estimates for economic growth in the country and said a recession may be under way.

Dagsavisen:
- Norway may invest $30 billion in renewable energy to cater for the European Union market, citing a report from Energiraadet, a committee created by the country’s Oil and Energy Dept. Norway should aim to capture 20% of the European market for renewable energy, helped by the development of offshore wind power and water power.

AFP:
- Iran continues to defy UN demands to suspend uranium enrichment and has yet to disprove allegations that it was pursuing nuclear power for military use, the UN atomic watchdog said today.

La Tercera:
- Chile’s copper output will probably rise 2.6% this year, after falling in the first quarter, as a new mine begins operations and others expand, citing the Chilean Copper Commission.

Saigon Times Daily:
- Apartment prices in Vietnam’s Ho Chi Minh City have declined as much as 50% since January. Central bank policies designed to cool Vietnam’s credit market have resulted in a shortage of capital and are the primary reason for the decline. Surging prices of building materials have also contributed.

Veitnam News:
- Vietnam’s inflation accelerated to 25.2% in May, citing data form the General Statistics Office. The Southeast Asian nation in April reported that consumer prices gained 21.4% from a year earlier, the most in at least 16 years.

South Asian Media Net:
- The vastly improved second-generation Prius in 2003 became an instant hit, helping Japan's top automaker, Toyota, win a reputation overnight as the frontrunner in green technology. Honda detailed plans last week to change that. Using technological advances that would make its hybrid system cheaper and more profitable, Honda will roll out three affordable hybrid cars over the next few years.

Nikkei:
- Sony Corp.(SNE) has developed a new solar battery that doesn’t use silicon, allowing it to reduce product costs by as much as a fifth.

Arab News:
- Saudi Aramco plans to invest $129 billion on new energy projects in the next five years, the company’s executive vice president of operations said yesterday. The $129 billion figure is nearly $40 billion higher than previous estimates.

Gulf Daily News:
- OPEC-member UAE is ready to boost oil output if necessary, Oil Minister Mohammed Al Hamli said yesterday.

Gulf Times:
- The cooling British housing market and the weakening pound could hit Dubai’s real estate boom as British buyers, one of the emirate’s largest groups of foreign investors, tighten their belts, analysts say.

Khaleej Times:
- Annual inflation in Saudi Arabia accelerated to at least a 27-year high of 10.5% in April from 9.6% the previous month, fueled by rents and food prices in the world’s largest oil exporter.

Weekend Recommendations
Barron's:
- Made positive comments on (MHK), (C), (WEN), (FDG), (TRMA) and (MTG).
- Made negative comments on (FTI), (HCBK) and (WFC).

Citigroup:
- Reiterated Buy on (MCHP), target $43.

Night Trading
Asian indices are -.25% to +.75% on avg.
S&P 500 futures +.24%.
NASDAQ 100 futures +.34%.

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Earnings of Note
Company/Estimate
- (DCI)/.51
- (BGP)/-.47
- (SNDA)/.51
- (AZPN)/.30

Upcoming Splits
- (UNP) 2-for-1
- (ATLS) 3-for-2

Economic Releases
10:00 am EST
- Consumer Confidence for May is estimated to fall to 60.0 versus a reading of 62.3 in April.
- New Home Sales for April are estimated to fall to 520K versus 526K in March.

Other Potential Market Movers
- The S&P/CaseShiller Home Price Index, Richmond Fed Manufacturing Index, (STM) Field Trip and (AXA) investor day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and automaker shares in the region. I expect US stocks to open modestly lower and to strengthen into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the week.